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On Semi’s 2016 Growth Attributable to Fairchild Acquisition

February 13, 2017 by Jeff Shepard

ON Semiconductor Corporation announced that total revenues in the fourth quarter of 2016 were $1,261.0 million, up approximately 33 percent compared to the third quarter of 2016. Fourth quarter revenue includes contribution of approximately $358 million from our acquisition of Fairchild, which closed on Sept. 19, 2016.

During the fourth quarter of 2016, the company reported GAAP net income of $110.9 million, or $0.26 per diluted share. Fourth quarter GAAP income before income taxes was $18.2 million as compared to $87.3 million in the third quarter. The fourth quarter 2016 GAAP income before income taxes was negatively impacted by approximately $113.8 million of special items, the majority of which were related to Fairchild. Fourth quarter GAAP gross margin was 30.5 percent. For the fourth quarter of 2016, GAAP operating margin was 4.4 percent. Adjusted EBITDA for the fourth quarter of 2016 was $252.0 million. Adjusted EBITDA for the third quarter of 2016 was $180.2 million.

Total revenues for 2016 were $3,906.9 million, an increase of approximately 12 percent from $3,495.8 million in 2015. Total revenue for 2016 included a contribution of approximately $411 million from Fairchild. During 2016, the company reported GAAP net income of $182.1 million, or $0.43 per diluted share. The 2016 GAAP income before income taxes included charges of $231.5 million from special items, including $104.8 million of amortization of acquisition related intangible assets. The remaining charges and special items detail can be found in the attached schedules. During 2015, the company reported GAAP net income of $206.2 million, or $0.48 per diluted share. The 2015 GAAP income before income taxes included net charges of $159.8 million from special items.

The company’s GAAP gross margin in 2016 was 33.2 percent. GAAP gross margin in 2016 included a net charge of approximately $70.7 million from special items. The company’s GAAP gross margin in 2015 was 34.1 percent. GAAP gross margin in 2015 included a net benefit of approximately $(0.8) million from special items.

"Our results in the fourth quarter provide clear evidence of our strong execution on the integration of Fairchild, and the results also validate our strategic and financial rationale for the acquisition," said Keith Jackson, president and CEO of ON Semiconductor. "We continue to make rapid progress in the integration, and we are currently tracking significantly ahead of schedule in realizing synergies from the combination of Fairchild and ON Semiconductor."

"I am very optimistic about our prospects in 2017 as our momentum in our strategic markets, which include automotive, industrial and communications, continues to grow and our design win pipeline continues to expand driven by our innovative products. With synergies from Fairchild and strong execution and cost control, we are well positioned to drive meaningful growth in our free cash flow in the current year and in following years."

"Based upon product booking trends, backlog levels, and estimated turns levels, we anticipate that total ON Semiconductor revenue will be approximately $1,215 million to $1,265 million in the first quarter of 2017," Jackson said. "Backlog levels for the first quarter of 2017 represent approximately 80 to 85 percent of our anticipated first quarter 2017 revenue. The outlook for the first quarter of 2017 includes stock-based compensation expense of approximately $15 million to $17 million. Net cash paid for income taxes is expected to be $16 million to $20 million."